A lesson from hedge funds

Herald – When you think about future financial stability, ask yourself this contrarian question: Why is it that the nefarious hedge funds, supposedly the bad boys of the financial world, actually came through last year’s crisis in relatively good shape?

It was widely predicted that these funds, which invest huge pools of capital for their wealthy clients, would have a crackup like that of the regulated banks. Some did go under, but the general catastrophe never happened. Why? The answer partly is that the hedge funds still had to live by the old capitalist rules: There was no lender of last resort to bail them out. So these unregulated managers turned out to be more cautious than the regulated ones.